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Kent Holland, J.D.
ConstructionRisk, LLC

Where the developer of an apartment complex filed suit as an intended beneficiary under the contract between a window manufacturer and one of the subcontractors on the project, the trial court denied the manufacturer’s demurrer (the equivalent of a motion to dismiss) because for the purposes of the motion, the developer had not shown it was an intended beneficiary of manufacturer’s contract and express warranty. The court found that the Virginia Uniform Commercial Code (UCC) applied to construction renovation, that the windows were deemed “goods” because they were attached to the building, and that the developer had a viable UCC claim against the manufacturer. However, the court applied the economic loss rule to limit the developer’s recovery to the replacement costs of the windows and to prevent the recovery of consequential damages to other property of the project. 139 Riverview, LLC v. Quaker Window Products, 2015 WL 1417873 (Virginia Circuit Court, 2015).

The court explained that, “A third party may sue to enforce the terms of a contract even though he is not a party to that contract if the contracting parties intended that the contract benefit that third party. [citation omitted]. ‘[T]his third-party beneficiary doctrine is subject to the limitation that the third party must show that the contracting parties clearly and definitely intended that the contract confer a benefit upon him.’”

Windows used in construction of a home may be considered “goods” and manufacturers of products used in construction may be sued under the UCC for defects in those products.

“As to third parties, the UCC also protects intended beneficiaries by abrogating the lack of privity defense where a plaintiff brings a warranty action against a manufacturer and the manufacturer might reasonably expect plaintiff to use the goods. Va. Code § 8.2-318. Va. Code § 8.2-715(2X3), however, requires privity as a necessary condition for recovery of consequential damages. The Supreme Court of Virginia interpreted this contract requirement to apply ‘only where recovery of consequential damages is sought.’”

“The economic loss rule limits recovery in tort against parties not in privity with the purchaser of a product to cases in which negligent manufacture or design has resulted in a product which constitutes a danger to the safety of persons or property other than the product itself.” Sensenbrenner v. Rust, Orling & Neale, Architects, Inc., 236 Va. 419, 424 (1988) (emphasis added). Purely economic losses are also a form of consequential damages which require privity of contract in order to allow recovery. Beard Plumbing & Heating, Inc., 254 Va. at 245.”

For these reasons, the court found the developer could recover under the warranty but only for the replacement costs of the window.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 18, No. 1 (January 2016).

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